Tuesday, September 15, 2009
Manitowoc (MTW)
Nice looking inverse head and shoulder breakout through 200 EMA on big volume. The stock is currently trading at 30% above the 50 EMA, so waiting for a retrace to at least 20 ema before going long would be the safest play.
Sunday, September 13, 2009
9/13 Dow Futures
Futures look weak at the moment - trying to hang on to support. Although it's generally a poor predictor for the market direction of the next trading day.
Bank of America (BAC) and Citigroup (C)
In the past few months we have seen a disproportionate number of shares traded for both BAC and C in the S&P 500, and both have caused quite a stir among investors and the public alike. Based on technical trend analysis, there's a couple of points that can be made:
1. Both are in uptrends, and both favor long positions but BAC is in a much stronger uptrend than C.
2. BAC has cleared almost all major resistances, and the only two that remains are $18.00 and $18.50. C, on the other hand, must reach ~10.50 before clearing the final major resistance.
From a fundamental standpoint, BAC has diluted their shares from 4.5 to 8.6 billion shares in 1 year. This magnitude of dilution has essentially cut the EPS in half, and it is highly unlikley BAC will ever return to the glory day highs of mid $40 PPS. The maximum I see BAC is around low 20's unless they buy back their shares. C, on the other hand, has only faced a 10% (450mil) share dilution since last year. But the problem is they're already insolvent if it wasn't for the government backings.
Believe it or not, the initial signal given to sell these two stocks occurred back in 2007. The charts below shows the weakening process and eventual breakdown. By sticking to trends, it would've been easy to see why they were great shorts that one could have held for a sizable profit in a span of 1 & 1/2 years. The purpose of this analysis is to demonstrate the power of trends, and why one should trade with the trend regardless of external views. Being right in fundamentals doesn't always translate to profits.
1. Both are in uptrends, and both favor long positions but BAC is in a much stronger uptrend than C.
2. BAC has cleared almost all major resistances, and the only two that remains are $18.00 and $18.50. C, on the other hand, must reach ~10.50 before clearing the final major resistance.
From a fundamental standpoint, BAC has diluted their shares from 4.5 to 8.6 billion shares in 1 year. This magnitude of dilution has essentially cut the EPS in half, and it is highly unlikley BAC will ever return to the glory day highs of mid $40 PPS. The maximum I see BAC is around low 20's unless they buy back their shares. C, on the other hand, has only faced a 10% (450mil) share dilution since last year. But the problem is they're already insolvent if it wasn't for the government backings.
Believe it or not, the initial signal given to sell these two stocks occurred back in 2007. The charts below shows the weakening process and eventual breakdown. By sticking to trends, it would've been easy to see why they were great shorts that one could have held for a sizable profit in a span of 1 & 1/2 years. The purpose of this analysis is to demonstrate the power of trends, and why one should trade with the trend regardless of external views. Being right in fundamentals doesn't always translate to profits.
Saturday, September 12, 2009
US Nat. Gas Fund (UNG)
UNG is one of the best examples demonstrating the power of trends and why it's a bad idea to try and catch the bottom. The sell signal was given back in late July of 2008, nearly a year ago. Since then, there has never been a buy signal on this fund. This was a great shorting opportunity, and demonstrates why you should always:
1. Always follow the trend.
2. Never average in (the greatest sucker play / mistake an investor can make)
3. Never take more than a 10% loss
Many had thought that natural gas had finally bottomed at 12 in May and this was the buy, but notice how the 20 EMA stayed well below the 50 EMA, and never even came close to touching. This was another great shorting opportunity.
Now that winter is approaching and it's typically the season for natural gas prices to rise, it is possible that 9.00 was the bottom. But it's pointless to try and predict the future - instead, the best option right now is to stay on the sidelines until the trends suggest otherwise. For UNG to be a buy, the 20 EMA must first cross the 50, and then be able to sustain it. No need to rush or try to catch the bottom (as the past few months have already proven that it was a bad idea) - sometimes the best position is to stay cash. It is better to be late and miss out on a little profit but be right than early and wrong.
The correct play was to short July '08 at around $47 once it broke 200 SMA and and 50/20 ema crossed. Another option was to short at the 20 EMA on 8/27/2008 and cover if it breaks through. This way, you would have rode it all the way down, and would still be short to this day and cover only when 20 crosses above 50 EMA again.
1. Always follow the trend.
2. Never average in (the greatest sucker play / mistake an investor can make)
3. Never take more than a 10% loss
Many had thought that natural gas had finally bottomed at 12 in May and this was the buy, but notice how the 20 EMA stayed well below the 50 EMA, and never even came close to touching. This was another great shorting opportunity.
Now that winter is approaching and it's typically the season for natural gas prices to rise, it is possible that 9.00 was the bottom. But it's pointless to try and predict the future - instead, the best option right now is to stay on the sidelines until the trends suggest otherwise. For UNG to be a buy, the 20 EMA must first cross the 50, and then be able to sustain it. No need to rush or try to catch the bottom (as the past few months have already proven that it was a bad idea) - sometimes the best position is to stay cash. It is better to be late and miss out on a little profit but be right than early and wrong.
The correct play was to short July '08 at around $47 once it broke 200 SMA and and 50/20 ema crossed. Another option was to short at the 20 EMA on 8/27/2008 and cover if it breaks through. This way, you would have rode it all the way down, and would still be short to this day and cover only when 20 crosses above 50 EMA again.
Genworth Financial (GNW)
One interesting stock is GNW - Genworth Financial. It hit 0.78 PPS back in the March bottom, and has since rallied over 1,000%. The signal was given at $2.00, and has made a 500% return according to the 20/50 EMA crossover strategy. I believe it's still not too late to enter in a long position once it drops back to the 20 EMA.
I like this stock for a couple of technical reasons.
First, it has dropped below the 50 EMA only once since the run started, which shows that it's in a very strong uptrend.
Second, it has risen above all major EMAs shown in the chart below, and the 50 EMA has crossed the 200 EMA (my bull run confirmation).
Third, they have not diluted their shares since the start of the financial meltdown. In fact, their total common shares outstanding have actually decreased year over year. This is an important piece of information to watch out for, as companies that have diluted shares will not rise to their prior highs. Take for example, DRYS, which went through a ~600% dilution since the crisis. The EPS is greatly diminished.
I like this stock for a couple of technical reasons.
First, it has dropped below the 50 EMA only once since the run started, which shows that it's in a very strong uptrend.
Second, it has risen above all major EMAs shown in the chart below, and the 50 EMA has crossed the 200 EMA (my bull run confirmation).
Third, they have not diluted their shares since the start of the financial meltdown. In fact, their total common shares outstanding have actually decreased year over year. This is an important piece of information to watch out for, as companies that have diluted shares will not rise to their prior highs. Take for example, DRYS, which went through a ~600% dilution since the crisis. The EPS is greatly diminished.
9/11/2009 - SPX update
The SPX made a new high yesterday at 1048, but it is still confined to the rising bearish wedge as seen in the chart below. Based on the strong uptrend of the market, it is best to stay long at this moment until the trends suggest otherwise. Notice that the SPX has risen above all EMA resistances, indicating that there is much more upside left.
Contrary to what most believe, I don't think there will be another crash coming this month or October. Not only is it just too predictable, there is also nothing in the trend that would suggest a crash of any kind that's coming. This is the prime example of why understanding fundamentals/reading the news has little to do with making money in the stock market. I am deeply concerned for the future of our country, and I understand the actions taken by the government/federal reserve will only delay the inevitable destruction of the USA. However, nobody knows when the fundamentals will actually hit the market. It could happen tomorrow, or in 2015. The point is you cannot predict the top accurately and sell all long positions and go short immediately before the crash. But you do know the trend, which is up at the moment.
By following my strategy and going long in April when the 20 EMA crossed the 50, you can see that the trend has stayed up this entire duration, and the only time it came close was during 7/8 - 7/10, when the market was about to break down on the head and shoulders formation. Most people thought that this was the beginning of the next crash. However, using the strategy, you can see that the 20 ema NEVER actually crossed the 50 ema, and this was THE best buying opportunity if you had missed the April signal. The correct way to play was to buy at that level, and sell for a small loss if the H&S did in fact break down. You would be minimizing your risk. Regardless, by sticking to the strategy you would've been in at SPX 800 and you would still be in profits regardless if the H&S broke down or not.
In terms of sectors, history suggests that financials and technology always leads markets out of recessions, and I don't see this as any exception. Some tech stocks are already reaching pre crash levels, and financials are equally strong. More conservative plays such as commodities are usually the last of the sectors to rise.
Contrary to what most believe, I don't think there will be another crash coming this month or October. Not only is it just too predictable, there is also nothing in the trend that would suggest a crash of any kind that's coming. This is the prime example of why understanding fundamentals/reading the news has little to do with making money in the stock market. I am deeply concerned for the future of our country, and I understand the actions taken by the government/federal reserve will only delay the inevitable destruction of the USA. However, nobody knows when the fundamentals will actually hit the market. It could happen tomorrow, or in 2015. The point is you cannot predict the top accurately and sell all long positions and go short immediately before the crash. But you do know the trend, which is up at the moment.
By following my strategy and going long in April when the 20 EMA crossed the 50, you can see that the trend has stayed up this entire duration, and the only time it came close was during 7/8 - 7/10, when the market was about to break down on the head and shoulders formation. Most people thought that this was the beginning of the next crash. However, using the strategy, you can see that the 20 ema NEVER actually crossed the 50 ema, and this was THE best buying opportunity if you had missed the April signal. The correct way to play was to buy at that level, and sell for a small loss if the H&S did in fact break down. You would be minimizing your risk. Regardless, by sticking to the strategy you would've been in at SPX 800 and you would still be in profits regardless if the H&S broke down or not.
In terms of sectors, history suggests that financials and technology always leads markets out of recessions, and I don't see this as any exception. Some tech stocks are already reaching pre crash levels, and financials are equally strong. More conservative plays such as commodities are usually the last of the sectors to rise.
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